IBM Exits Hardware in 2020?

I project by 2020 IBM will sell off whatever remains of its semiconductor and server businesses to be a software and services company.

You can almost see the 2020 headline now: IBM sells remaining hardware business to (fill in the blank). You can connect the dots to that headline pretty easily.

Big Blue announced plans to sell off its hard disk drive business to Hitachi in April 2001 for $2.05 billion. Even though it invented the hard drive, the business had become a commodity dominated by high-volume, low margin companies such as Seagate.

Three-and-a-half years later, it struck a deal to sell its desktop and notebook PC business to China's Lenovo for $1.75 billion. Despite the fact IBM's ThinkPad was an icon of the business traveler, its market was a loss leader for a company that lived on high margin servers, software, and services.

Today, Big Blue effectively said its Intel x86-based server line has become a commodity too and would be sold to Lenovo for $2.3 billion. What's left is a big, increasingly expensive semiconductor business primarily geared to make IBM's Power and proprietary server processors.

There's still plenty of life left in this old gal. The servers it makes power some of the world's most powerful systems used on Wall Street to run big banks and in US national labs to shepherd the country's nuclear stockpile and other highly sensitive jobs. These servers are not going to China -- or even another company -- in the immediate future.

But I predict they will go. Indeed, last year IBM lost to Amazon a $600 million deal to supply servers to the CIA. That's a sign big data farms of x86 servers are eating away at the advantages of IBM's in-house architectures.

Meanwhile, Moore's Law is getting more expensive with each turn of the crank and experts agree there are only perhaps three major turns of the crank left on that engine. But IBM still has a couple good punches left before it bows out of the hardware fight.

IBM's chip engineers are well down the path with partners such as Micron to 3D stacks of processors and memory that will give them a big boost in the next couple years. Late last year it also attracted Google to join a consortium rallying around its Power architecture in servers. I'm taking a show-me stance on the Google collaboration.

IBM is as well positioned as a company can be for such a dramatic step completely into software and services. It has already shared the secret sauce of its chip process with Globalfoundries and Samsung -- the most likely candidates to buy IBM's fabs someday. And it is on solid footing in the higher margin software and services markets with its new Watson analytics group that may someday be the main business we associate with IBM.

This maker of global business machines survived the death of typewriters. I suspect it could have a long life after 2020 when I expect to read the story about it existing hardware.

The history of IBM is littered with failed oportunities. IBM is now and has ever been a Marketing company, controlled by salesmen, who get paid for maintaining "customer relationships". A couple of examples: Microsoft would not exist if IBM had not let itself be wrong-footed and outsmarted by Bill Gates. Oracle would not exist if IBM had not sat on the Relational Model for three years, fearing to impact their customers use of IBM's "IMS" data management, software, a technical disgrace. Intel would not exist if IBM did not cop to their 8080 architecture, inferior to their own IBM 360. and then provide them a 10 million dollar loan when they were about to go under. ARM would not exist if IBM had properly fostered and promoted and opened their own RISC architecture. IBM invented all this technoloty, and then let it slip through their fingers because of their "Marketing" vision. Even now, if the dim-wits in IBM's White Plains Industry Marketing Department cannot forsee a 15% net margin, they dump the activity. The basic error is to suppose that if you ask your customers "what they want", and then give it to them, you will be successful. As everybody else now must understand (it's a trivial fact}, "customers" do not know what they want. IBM still doesn't understand this.

WD (including Hitachi Global Storage, and suppliers such as ReadRite and Komag)

The minor:

Toshiba/Fujitsu (IIRC ~10% market share)

Plus possibly a company in China making a negligable amount of HDD's.

At least the HDD companies have some good ideas, such as targeted drives (e.g. WD Black=performance, Blue-mainstream, Red=NAS, Green=power saving) and hybrid drives (Seagate's with 8G NAND cache, WD has some with full SSD and HDD).

The HDD industry does seem to have a pretty clear path to substantial density increases with HAMR and patterned media; I'm not sure the path is so clear for flash memory. It's also interesting that there are close ties between the some of the HDD & flash companies (e.g. Seagate & Samsung, Toshiba)

@rick merrit: Once there were 30+ drive makers. Now there are about four. It's the way of tech I think.

Yep. Hardware steadily becomes commoditized, and it mostly doesn't matter whose name is on the label. The Backblaze folks recently posted a blog entry about the drives they buy for their cloud services, and the answers were Seagate and WD, with Hitachi third and a few others with miniscule usage. According to their stats, Hitachi drives are the most reliable, but not enough so to make them pay the higher price Hitachi wants. (And Hitachi apparently just sold off it's drive business, with part going to WD and part to Toshiba.) I remember when WD made drive controllers, not complete drives.

I used to read one of the trade papers that tracked OEM manufacturers, and watched the progress toward "last men standing" in the OEM drive market. Some I regretted (like when CDC sold it's OEM drive operations to Seqagate, and for a while I kept a table of which Seagate models were former CDC. CDC drives were built like tanks and just ran.) Some I said "Good riddance to bad rubbish", like Tulin, whose drives bred bad blocks like flies, and I suspected would fail before installation.

But it's the way of tech in all areas. You constantly cut costs and sell cheaper, or you get acquired or go belly up.

With growing in Cloud business, i can also see IBM focusing in it. But, Amazon and others have really gained massively in Cloud computing. How would IBM compete with Amazon and others currently leading in the Cloud?

No surprise IBM sold off the drive business. In fact, the surprise is that it didn't happen earlier. I've been watching consolidation in the drive industry for decades. Does anyone remember Micropolis, or Quantum, or Conner Peripherals, or CDC, or... Consolidation was inevitable as prices dropped, margin shrank, and you needed market share to survive.

Hardware inevitably becomes a fungible commodity, with commodity pricing, and you can't make money on it unless you sell enormous volumes.

The user isn't buying hardware. They are buying a tool to do work, and that tool includes hardware and software, designed and integrated for a purpose. The value to the user is what they can do with the tool, and not what the tool is made out of.

I don't see IBM entirely exiting the hardware business, but they began diversifying into software and services when the mainframe market was still thriving, and for good reason.

IBM will stay in hardware that is not a commodity and can command a decent price, but IBM has always sold fundamentally sold systems, not components.

IBM is well known for its research, development and innovation as they are for mass production. These are the times when carrying out hardware business is not that profitable and also they have been holding the legacy from long. May be sme new players can take it forward and bring in more revolution.